So far we have experienced 7 million foreclosures. Beyond that there are still 9 million homeowners seriously underwater on their mortgages and there are millions more who are stranded in place because they don’t have enough positive equity to cover transactions costs and more stringent down payment requirements.

And that’s before the next down-turn in housing prices - a development which will show-up any day. In fact, another downward plunge is a positive certainty now that the buy-to-rent LBO speculators are rapidly pulling out of those “flash” bull markets in Arizona, California, Los Vegas, Florida and elsewhere. The latter were merely short-lived price eruptions which were an artifact of the Fed’s free money policies.

Yet even as Wall Street heads out of Dodge City the normal wave of organic buyers is nowhere to be seen. That’s because the inexorable normalization of interest rates is already beginning to drive housing affordability even further south among the diminishing cohort of buy-to-occupy households with sufficient income to meet today’s financing standards.

Among the latter, incomes are stagnant in real terms and have been so for a decade. In the absence of real income gains, therefore, the “affordable” price of housing is essentially an inverse function of the cost of leveraged carry. As the latter goes up, the former goes down.

In short, the socio-economic mayhem implicit in the graph below is not the end of the line or a one-time nightmare that has subsided and is now working its way out of the system as the Kool-Aid drinkers would have you believe based on the “incoming data” conveyed in the chart. Instead, the serial bubble makers in the Eccles Building have already laid the ground-work for the next up-welling of busted mortgages, home foreclosures and the related wave of disposed families and social distress.

Yet none of this carnage was inexorable or necessary. In fact, a housing bubble of the fantastic magnitude that unfolded during the Greenspan era could not occur on the free market. The 3X gain in housing prices between 1994 and 2007 was entirely an artifact of the massive outpouring of cheap mortgage debt that occurred during that period. The latter, in turn, is a consequence of the Fed’s financial repression policies—–maneuvers that disable and paralyze market interest rates and thereby enable runaway speculations fueled by virtually unlimited cheap debt.

Case Shiller Index – Click to enlarge

Oddly enough, even the baby-steps toward normalization of interest rates recently taken by the Fed make it easy to benchmark the monumental scale of the mortgage bubble ignited by the Maestro’s abject capitulation to Wall Street after the Bush Republicans gained the White House in December 2000. On an all-in basis, Greenspan’s reckless money printing increased mortgage volumes by up to 5X what would have prevailed in an honest free market.

As I laid out in chapter 20 of the Great Deformation (“How The Fed Brought The Gambling Mania To America’s Neighborhoods”), during the 30 months after the Fed’s first bubble splattered—the dotcom crash—-Greenspan foolishly cut money market interest rates over and over until the 6.5% cost of money on Christmas eve 2000 had been reduced to 1% by June 2003. Never before in the Fed’s 100-year history had rates been reduced by 85% in such a short interval with such reckless abandon.

Not surprisingly, variable rate mortgage issuance exploded because teaser interest rates plummeted to lower levels than even during the Great Depression. Whereas mortgage issuance had rarely topped $1 trillion in earlier years, the run rate of issuance topped $5 trillion during the second quarter of 2003.

Such a massive explosion of ultra-cheap mortgage debt was guaranteed to elicit a frenzy of speculation in residential housing. Indeed, as is evident in the chart above during the roughly 60 months after Greenspan’s panicky rate reductions incepted, the national housing price index doubled.

The great Fed Chairman of yester-year like William McChesney Martin and Paul Volcker would have been appalled by such an outbreak of speculation and would not have hesitated to pick up the punchbowl and march straight out of the party. That’s what Martin did in August 1958 when he suspected too much speculation on Wall Street only six months after a business recovery had started.

But Greenspan had by then been coroneted as the Maestro and proceeded to prove exactly why monetary central planning is such a dangerous doctrine. When it became evident that large amounts of this massive outpouring of mortgage debt were being used as “cash-out” financing and applied to current spending on new carpets, autos and Caribbean cruises, Greenspan pronounced this destructive raid by mortgage borrowers on their own home equity nest-eggs as a fabulous new advance in financial innovation called “mortgage equity withdrawal”. It would even outdo Keynes: the people, not their government, would imbibe the magic elixir of more debt, and thereby generate more spending, income and economic growth.

In truth, America’s baby-boom generation was robbing its own future retirement years, but the Maestro was oblivious. Instead, he was busy tracking the quarterly rate of MEW (“mortgage equity withdrawal”) and crowing about how it was contributing to unprecedented prosperity on Main Street. It ended up in a conflagration of exploitive lending, fraud, default and trillions of financial losses, of course, but not until $5 trillion of cumulative MEW during the decade through 2007 had ruined the financial well-being of America’s middle class for a generation to come.

Under a regime of free market interest rates $5 trillion of MEW—that is, robbing from the future to party today—could not have happened. Long before the 2003-2006 blow-off top, mortgage interest rates would have soared to double digit levels, causing monthly debt service requirements to double or triple. Moreover, in an environment of market-set interest rates there would have been no Greenspan Put or ultra cheap wholesale financing that enabled Wall Street to fund mortgage boiler shops with warehouse credit lines and buyers of its toxic securitization products with cheap repo.

In short, free market interest rates are the vital check and balance mechanism which prevents runaway spirals of debt issuance and frenzied bidding-up of asset prices. Yet it was Greenspan’s “wealth effects” doctrine that destroyed the mechanism of honest price discovery once and for all. The carnage that has ensued in the nation’s credit and housing markets, therefore, is on you, Alan Greenspan.

The outcome of the Bernanke money printing spree of 2008-2013 provides even further evidence of Greenspan’s original culpability. During that five-year period, the Fed drove the 30-year mortgage rate from 6.5% to a low of 3.3%, thereby trigging a renewed wave of “refi madness” as shown below:

Since the spring of 2013 when the Fed signaled that its massive bond purchases would enter the “taper”, however, the mortgage rate has rebounded to about 4.5%. Accordingly, about 35% of the Bernanke repression has already been retraced and even that modest start toward interest rate normalization has had dramatic impacts on mortgage volumes.

The mortgage refi machine is now virtually shutdown, meaning that the run rate of mainly purchase money mortgage originations has plummeted to about a $1 trillion per year. So the math is pretty basic: During much of the Greenspan housing bubble the mortgage origination rate was $3-4 trillion annually—a level dramatically above what is being generated right now in a market that has taken only a baby step toward normalization.

Needless to say, it was this massive and artificial excess of mortgage financing that created the original Greenspan housing bubble; that induced his successor to try to overcome the carnage of the bust with a new round of refi madness; and that has now left the nation’s residential housing market high and dry for the fourth time since 1990.

As shown below, this short-term flash boom in housing prices induced by Bernanke’s money printing spree has driven first time buyers out of the market. And now more and more “trade-up” buyers will be forced out too— as they face steadily higher interest rates on new purchase mortgages and therefore progressively lower levels of home price affordability:

So the housing market is on the eve of another trip through the grinder of falling prices, rising defaults and spreading socio-economic distress on Main Street. Yet because the Fed gets away with ludicrous excuses about the mayhem it causes—such as Greenspan’s pathetic claim that the housing bubble was caused by the propensity of ex-rural serfs in China to save too much when they moved into the factory cities— the debilitating cycle of bubble finance goes on.

As this recent Wall Street Journal story so starkly conveys—policy makers and lenders are so desperate to restart a new round of phony housing finance that the 3% down mortgage is already back, and 10,000 pages of Dodd-Frank regulations have done nothing so stop it:

One such lender is TD Bank, Toronto Dominion’s U.S. unit, which on Friday began accepting down payments as low as 3% through an initiative called “Right Step,” geared toward first-time buyers and low- and moderate-income buyers.

No use bothering to vote. They control the election scoreboards just like they control the market scoreboards. They've been "all in" for quite a while now and nothing needs to have any basis in reality any more. They control the media, and for the average dumbfuck who believes everything he hears via the MSM that is enough. People are waking up but not enough fast enough.

CONCLUSIVE PROOF OF THE FACT THAT PAUL KRUGMAN IS A MASSIVE FRAUD & COMPLETE LIAR

Paul Krugman describes it as a “canard” and Dean Baker accuses anyone who points it out of being “either a fool or a liar”, but the truth is that, yes, Krugman did in fact call for the Fed to create a housing bubble in 2002. The best Dean Baker can do is to quote Krugman doing so, but then deny that he actually meant it by asserting that Krugman was being “sarcastic”, adding “So let’s cut the crap.”

Yes, let’s cut the crap, indeed. All we have to do to see that Krugman did in fact mean it is to look at the quote Baker refers to in its context. Since I addressed Krugman’s denials already in Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis, I’ll paste the relevant excerpt from the book (with the key portion Baker quoted in bold):

On August 2, 2002, Krugman wrote an article in which he said that what the Fed needed to do in order to prevent a recession was to create a housing bubble. His statement, quoted in its full context, was as follows:

" few months ago the vast majority of business economists mocked concerns about a “double dip,” a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I’ve repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of PIMCO put it, Alan Greenspan needs to create a housing bubble to replace the NASDAQ bubble.

Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging."

Curiously, he commented that Alan Greenspan needed a recovery “to avoid awkward questions about his own role in creating the stock market bubble”, but didn’t elaborate on what that role was. He closed by saying, “But wishful thinking aside, I just don’t understand the grounds for optimism. Who, exactly, is about to start spending a lot more?”

It is important to be clear on what Krugman was saying here. His earlier record on the housing bubble is unambiguous. He had repeatedly advocated that the Fed should lower interest rates for the explicit purpose of creating a boom in housing as a route to economic recovery. Here, he was implicitly acknowledging that the numerous interest rate cuts that had already been made had not solved the problem. The reason he offered was that people were still not spending enough, and his argument had been that the Fed should cut interest rates even further. He attributed the view that the Fed “needs to create a housing bubble” to Paul McCulley, but there can be no mistake, reading his remark in context, that Krugman was in agreement. This is evident in his prefacing the remark by saying that people warning of a double-dip recession “made a lot of sense”, by his own (not McCulley’s) comment that to “fight the recession” the Fed “needs” to do so, and by his expressed pessimism that the Fed could “pull that off”.

So there you have it. It is perfectly evident from the quote’s actual context that Krugman was not being “sarcastic”. But that’s not all. There is a broader context to consider, as well. While the above quote from his August 2002 article is the most infamous example, Krugman in fact repeatedly and consistently advocated a Fed policy of lowering interest rates specifically in order to create a housing bubble.

It's not my comment with the exception of the capitalized first sentence, and the excerpt I quoted is approximately 30% of the essay I linked to (if you had clicked the link you would have realized this).

And this mess does not even touch on the raw sewerage which is the remains of the title deed system after MERS. It will take decades to sort out all the clouded titles even if the legal system is allowed to work properly.

Stockman is a pimp. I don't care what anyone says. The old school trickle down boys may have had their economic systems implemented then bastardized - and they should share blame due to having philosophy with loopholes - but he has been on his game for years.

He is calling out the entire Federal Reserve System, Wall Street, and Washington.

He is consistently trashing the political bullshit on both sides of the past 40-100 years.

He has had an epiphany. For you to reach back 30 years and off-handedly trash and hash him in a box back to Reagan and Trickle Down circa 1984 - after 30 years of both parties raping the Constitution, the Banking System, the Law, Glass Steagall, and selling us out to China and anyone else under the name of "Freedom" - is a narrow, short-sighted, unprocessed stream of thought knee-jerk reaction that appears to wobble upon the foundation of a left/right paradigm that is meaningless and lacking thought (besides eloquence).

That he is pissed off because of the incessant bastardization of common sense.

That he is old enough to not care about kissing political ass and is spelling out the lies of both sides.

That he is being honest about the insanity of a Federal Reserve System, a Government too large, a Financial System too corrupt, and a populace too distracted or stupid to know they are being sold down the river into serfdom.

Huh? I said he was laying it down! Jesus man. Get a grip. Learn what it means to be logical. WHen I point out his flaws I do so with good intentions. He understands what is happening now, but if trickle down is a theory to give to the rich so they can give to the poor, guess what? It doesn't work that way. Wealth will not be shared without compitition, and the rich do not want compitition.

The trickle down then meant top earners would keep more of their wealth and use it in a useful, profitable, and beneficial way. This is the natural way of doing things.

The trickle down now means a collusion between banks and government to create money out of thin air to give as a gift to the rich and then require us all to pay them back while they charge us transaction and handling fees all the way through. This is the criminal way of doing things.

BOTH definitions are immoral, illegal, and the basis of CRONY CAPITALISM. Reagan's 'trickle' gave birth to what we have today. I want to see 'trikle down JUSTICE, ETHICS, COURAGE, and MORALITY, but those in a position to do such have no inclination to emrace these qualities or, more likely, have no SOUL from which these qualities originate...

Mortgage forgiveness is so 2010. This tim they will have a "One Off Capital Levy". From the IMF's "Taxing Times" -

The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.1 The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away.

It's not inconceivable, actually. The with such a vast number of unoccupied, bank-owned, and institutional buy-to-rent homes, some of these will either have to be torn down or incorporated into welfare programs with sliding scale rents. The food stamp machine is already in place. Unfortunately, our profoundly simple-minded "leadership" will take twenty years to figure out the rest.

You feel nothing BUT stupid. Houses are selling at these levels because many people can get loans which appear to be cheap, cannot conceive of having to repay them, and are essentially equipped with the minds of children.

Over 50% of houses are bought with FIAT today. This is mostly institutional (e.g. Blackrock via the FED) or international $ coming home to roost. While institutions such as Blackrock are taking a hiatus from their buying spree many international buyers are shifting into 3rd gear. The Chinese want real assets (always have) and US RE is less frothy than China RE.

Clive Bundy is a major smoke alarm going off but most people can't find where the true fire is. It all goes back to the banking cabal. The US has been debt enslaved to the tune of $17 Trillion with future obligations pushing north of $250 Trillion. China will no longer support our trade deficit just as Russia is now restructuring theirs in the Ukraine. UN / IMF / G7 / G20 meetings are photo ops. The real negotiating is behind closed doors and involve Jack Lew begging for more gold or continued $ support in return for federal lands being leased / given or military hardware. I also wonder whether the CIA shares its gold with the FED that it gets from all of its opium / heroin trade worldwide. It is in their best interest to keep the game running.

When it comes to real estate low interest rates at some point becomes a double edge sword, that effects both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. Often we reach or exceed demand, this eventually has a dampening effect on rents and people stop buying it as an "investment".

To make sense prices must rise and real estate appreciate more then the natural depreciation from the wear and tear from age or the main driver for owning it vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity. More on this subject below.

I'm no Greenspan fan by any stretch but how long has he been gone? Is there not one person after Greenspan who has some responsibility to implement the correct policy? Bernanke for instance could have proposed the common sense approach of bankrupting these entities(banks) out of business. Instead he chose to double down on debt and the further debasement of the dollar. Yellen. Same thing. Something is about to snap and these people will all be hunted down and rightly so for the wrongs they've continued to pile on America.

the 20th century and all its growth and wealth to the classes was borne on the backs of cheap oil. Easy to find, easy to pump, easy to burn.

now we're paing close to 5$for a gallon of gasoline that cost 32 cents 50 years ago.

We're paying 4$ for a loaf of bread that used to be a quarter.

Most people don"t even make 50K$ - how they gonna buy a loaf of bread, let alone a house?

Peak oil means the current economic rough patch will last the rest of our lives. In retrospect, these will be the good old days.

Live beneath your means and acuire the thing you need to live when the current infrastructure can no longer provide them.

We blame economic policy and politics, but ir is in fact diminished natural reasources in the face of global demand. There is not enough for everyone and slowly society crumbles back into every man for himself.

THe media will hide this fact until it is too late for most people to make a proper decision. They want to prevent chaos and instead are ensuring wholesale genocide.

TMP, that is true. Projected demand for natural resources is way higher than supply. The R/P ratio for coal is only 140 years, Uranium is 45 yrs, oil is 40 years. We will destroy the planet in the process, burning all the fuel and creating a few more Fukushimas along the way.

I like David Stockman - seldom does anyone see through their matrix - Paul Roberts is another person I have only good things to say about.

But Stockman is failing in his analysis of the never-ending crisis.

The question that needs to be asked is WHY are the decision-makers effectively going with policies that are without a doubt economic suicide - that defy the basic rules of economics?

Some say it's because they want to add to their billions - but hang on - what is the point of adding another billion when the end game is annihilation - not only will that extra billion vaporize - your entire fortune might vaporize.

Some say the central bankers are stupid fools - they don't understand that what they are doing will end very very badly. I say bullshit - of course they know that printing trillions of dollars will end badly. When has money printing and monetizing debt EVER ended well?

So David - why are they engaging in such seeming madness?

I would suggest that this is all about the price of oil and the impact of that on growth. In 1998 oil was $12 - in 2001 it was $38 - and that's when the money hose started. In August 2008 oil was $147 and collapse was on - and now it's always at $100 or so creating a continuous drag on growth.

QE and ZIRP are not stupidity and they are not about enriching the 1% - they are about fighting the End of Growth.

If they were so smart, then they would also see that "fighting the end of growth," is futile. They are fighting to hold on to power, dumbshit. That is the only fight here which is not futile, because they only need to hold on until they get a little older. In this respect, our "leadership," is no better than that of Syria, Iraq, Spain, Brussels, Libya and the African states, the UK, Mexico, France, Greece....

They are all self-interested, and to cope with the guilt of pretending to lead while you feather your own nest, they have children, which provide a bottomless justification. To heck with your kids, I did it for mine. Now you do the same. By the simple logic of this, doom follows.

Ah yes--growth---the only thing that will sevice the debt--any debt-- a must for the banking class to realize profit on money from nothing--by all means let's have growth. or maybe "neither a borrower nor a lender be"?

Another genius. If home prices are at artificially high levels due to cheap and easy credit, then most people are forced to borrow on the same terms, and only those who earn significantly more are excepted. I earn enough to buy my homes with cash, and yet I am still being robbed by the credit-elevated pricing. In essence, millions are forced to take out HELOCS, since the first mortgage is limited. People who say no to the system legitimately fear getting left behind. Moderating this and other such effects is the very essence and purpose of government. Therefore, we have a government that has abandoned its proper role and is engaged in shameless self promotion. It is a very old game.

What is the obsession with Greenspan? He lowered fed rates for a short while like everyone before and after him; whereas, Bernanke has lowered them more, for longer, and has done QE too.

While misdirecting our attention on Greenspan, Stockman NOW says to raise interest rates? Hasn't that been the plan all along? Like a drug pusher creating a new customer, the fed would buy up government debt under ZIRP, and then raise the rate once the government was addicted and couldn't stop borrowing.

He's only partially right. It was a the Community Reinvestment Act, especially in hands of Clinton/Cisneros that required banks to loan money based on considerations other than credit, capacity and character and caused the development of NINJA mortgages.